Bank challenging Michigan law overturning judgment

State GOP leader’s brother is beneficiary

4/2/2012

TROY, Mich. — Wells Fargo bank is challenging a new state law signed by Republican Gov. Rick Snyder that would overturn a $2.4 million judgment against the brother of state GOP Chairman Bobby Schostak for a northern Michigan real estate deal gone bad.

“We fully expect to challenge the constitutionality of this law on a number of grounds,” said James Allen, a lawyer representing Wells Fargo.

A Grand Traverse County judge ruled that David Schostak was personally responsible for the amount owed on a Garfield Township shopping center when it defaulted on a mortgage.

Cherryland Center is owned by Cherryland Mall LP, a Schostak Bros. entity.

Mr. Schostak is co-chief executive officer of the Livonia real estate company.

The company quit paying on its mortgage in 2009 and the bank foreclosed in 2010.

The Michigan Court of Appeals upheld the ruling in December, saying that Cherryland Mall LP’s insolvency “triggered the full recourse provision of the mortgage.”

A bill to reverse the decision and retroactively clear Mr. Schostak was approved this session with strong support in the Republican-controlled legislature.

It passed 32-5 in the Senate and 97-12 in the House.

On Thursday, Mr. Snyder signed the bill, saying that it “encourages continued business investments in Michigan by ensuring clarity in certain types of commercial loans.”

State Rep. Tom McMillin (R., Rochester Hills) and chairman of the House ethics committee, said he was bothered that the measure alters existing contracts and was rushed through the Legislature.

He said his initial concerns were elevated when he discovered the Schostak connection and what he said were inflated claims by backers of the bill.

“It was one of the more disturbing bills that were taken up this session,” Mr. McMillin told the Detroit Free Press. “We were originally told … the sky is falling. But it didn’t appear there was going to be a calamity.”

Southfield real estate businessman Michael Berger defended the legislation, saying it heads off a potentially tough ruling for Michigan developers.

“It very well may put many of them out of business and into bankruptcy, further crippling Michigan’s economic recovery,” Mr. Berger said during testimony in Lansing.

Lawrence McLaughlin, a longtime real estate lawyer for the Schostak company who helped write the new law, said, “Is Schostak a beneficiary? Sure they are. Did we do it for Schostak? No, we did it as an industry effort.”

Bobby Schostak said he didn’t lobby for the bill helping his brother and the family business.

“I stayed away from it,” he said.